The US services sector experienced significant expansion last month, reaching a remarkable 33-month high as new orders surged at the fastest pace since March 2022, evidenced by recent data from S&P Global. The firm's manufacturing purchasing managers' index saw an increase to 56.8 in December, up from 56.1 in November.
However, it fell short of the flash reading, which reported a consensus of 58.5 in a Bloomberg survey. Chris Williamson, chief business economist at S&P Global Market Intelligence, stated that 'business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead.' The notable performance of the service sector has effectively counterbalanced the ongoing challenges faced by the manufacturing industry. Recent data from S&P Global indicated that the manufacturing sector remained in contraction territory in December, grappling with declines in output and new orders.
Nonetheless, within the services sector, output and new orders demonstrated the sharpest growth rates since March 2022 as consumers exhibited a greater willingness to spend, particularly following the presidential election. Williamson added that business confidence reached an 18-month high, with hiring experiencing its first uptick in five months, albeit modestly.
Expectations for accelerated growth in the new year are founded on the anticipation of more business-friendly policies from the incoming Trump administration, which may include favorable tax and regulatory environments along with protectionist tariffs. Despite signs of easing cost pressures in December, with inflation slowing for the third consecutive month, input prices have escalated quicker than the average levels observed prior to the pandemic, as the survey indicated. 'While the strong service sector PMI reading for December positions the US economy for a robust start to 2025, such vigorous growth does warrant a more cautious stance from policymakers regarding interest rate reductions,' Williamson explained. Additionally, on Monday, Federal Reserve Governor Lisa Cook urged monetary policymakers to adopt a 'more cautious' approach toward interest rate cuts, citing more persistent inflation than previously assumed in her September evaluations..